Litigation: The NLRB’s view on employee rights to class actions

The National Labor Relations Board (NLRB) recently joined the ranks in ruling on whether class arbitration waivers are enforceable in the wake of the Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion. According to the NLRB, employees cannot be required to relinquish their right to class action resolution of employment claims via a waiver in an individual employment contract. On Jan. 3, the NLRB issued its opinion in D. R. Horton, Inc. and Michael Cuda in which it focused on the rights of employees under the National Labor Relations Act (NLRA) to engage in concerted activities and the corresponding prohibition against employers interfering with those rights.

The individual employment contract at issue in Cuda prohibited both class arbitrations and class actions in a judicial forum. The issue presented by the waiver, as described by the NLRB in Cuda, was “whether the [contract’s] categorical prohibition of joint, class, or collective federal state or employment law claims in any forum directly violates the substantive rights vested in employees by Section 7 of the NLRA.” The NLRB answered this question in the affirmative, finding no conflict between its ruling and the Federal Arbitration Act (FAA) or Concepcion.

The NLRB engaged in a detailed analysis of the rights afforded employees under the NLRA, specifically the right under Section 7 “’to engage in . . . Concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .” In concluding that the filing of class or collective actions regarding wages, hours or other working conditions is conduct protected by Section 7, the NLRB stated that “[t]hese forms of collective efforts to redress workplace wrongs or improve workplace conditions are at the core of what Congress intended to protect by adopting the broad language of Section 7.

Such conduct is not peripheral but central to the Act’s purposes.” The NLRA “equally protects the concerted pursuit of workplace grievances in court or arbitration.” Accordingly, the waiver was deemed to violate Section 8 of the NLRA, which prohibits employers from interfering with, restraining or coercing employees in the exercise of the rights guaranteed by Section 7.

In holding the waiver unenforceable, the NLRB held that Concepcion was not controlling, and that the purposes of the FAA were not frustrated. The NLRB distinguished Concepcion on the bases that it did not address the NLRA or an employment agreement, and it involved “a conflict between the FAA and state law, which is governed by the Supremacy Clause, whereas the present case involves the argument that two federal statutes conflict.” Further, the NLRB relied upon Supreme Court precedent regarding arbitration and the vindication of statutory rights to find that the FAA did not conflict with its ruling:

“The Supreme Court has repeatedly emphasized, however, that the FAA protects the right of parties to agree to resolve statutory claims in an arbitral forum so long as ‘a party does not forgo the substantive rights afforded by the statute.’ Thus, arbitration may substitute for a judicial forum only so long as the litigant can effectively vindicate his or her statutory rights through arbitration.”

The NLRB discussed the limitations of its ruling, pointing out that “an agreement requiring arbitration of any individual employment-related claims, but not precluding a judicial forum for class or collective claims, would not violate the NLRA, because it would not bar concerted activity.” The NLRB decision also indicates that a waiver similar to the one at issue in Cuda might be found enforceable if it were in a collective bargaining agreement rather than individual employment contract. The NLRB acknowledged that “a properly certified or recognized union may waive certain Section 7 rights of the employees it represents.” As such, a waiver in a collective bargaining agreement is distinguishable from one found in an individual employment contract:

“The negotiation of such a waiver stems from an exercise of Section 7 rights: the collective-bargaining process. Thus, for purposes of examining whether a waiver of Section 7 rights is unlawful, an arbitration clause freely and collectively bargained between a union and an employer does not stand on the same footing as an employment policy, such as the [individual contract in Cuda], imposed on individual employees by the employer as a condition of employment.”

NLRB decisions can be appealed and subjected to judicial review by the U.S. Courts of Appeal. Therefore, the actual limitations of the NLRB’s decision in Cuda remain to be seen.